By focusing on three areas - confidence, quality, and skills - the industry can contribute a lasting legacy to a healthier housing market for the long term, Mr Van der Heijden said. He emphasised the importance of increasing confidence.
Here is his speech in full.
“Hello, ladies and gentlemen. I am Martijn Van der Heijden, chairman of the CML, and it’s my pleasure to welcome you here today.
What a magnificent backdrop, with the Tower of London behind us. Mind you, perhaps it’s just as well we’re outside the castle walls. The irony of a load of bankers being sent to the Tower today is not lost on us.
This lunch is the CML’s annual chance to bring members and others together. Contacts are made, ideas exchanged, and relationships strengthened here. We are pleased to be the facilitator of such relationships – long may it continue.
It’s also our chance to say thank you to the people we have worked with from other organisations over the previous year. This includes trade bodies, regulators, government departments, consumer bodies and journalists.
While we may not always share the same views, we hope that you regard the CML as an organisation that is professional to work with. We certainly appreciate the professional way that you work with us.
And - given that there’s no such thing as a free lunch - this is also the main opportunity in the year for the CML chairman to address so many movers and shakers all in one place, and to do so in a very strong Dutch accent. I regard this as a privilege that I do not intend to waste.
Concerns
So I ask for your indulgence as I offer a few reflections. Clearly I am not going to solve the UK’s economic and housing issues in the space of 20 minutes. But in the best tradition of thoughtfulness for which the CML is renowned, I hope I can offer some flavour of the issues that concern us beyond the “here and now”.
In short, I think we have a lot to be proud of. We’re coping well with a very prolonged economic crisis, and an unprecedented regulatory change agenda.
But I do think there are areas where we can develop. And as your youngest ever Chairman, can I suggest we could do worse than take inspiration from organisations and ideas stretching back thousands of years. I believe we can learn from the old guilds and ensure we are a professional trade of craftsmen and women. More on that later.
I want to talk about why mortgages matter, what the environment is like, and finally where I think our industry can develop further.
Let’s start with the easy bit - why does mortgage lending and the mortgage industry matter?
Crucially, it provides employment for all of us – enough reason in itself! Even more importantly though, 81% of British adults see home-ownership as their desired tenure in 10 years time, hardly changed throughout this crisis.
The way we lend matters as well. While moving house is often cited as a prime trigger of stress, not being able to get a mortgage or losing your home must surely both feature in the list of top key stressful events in life.
Balance
What a careful balance we have to strike - how we behave to our customers at key events in their life is massively important on a human level. And on a wider economic level, experience on both sides of the Atlantic shows that recovery from a recession requires support and strength in housing.
As Housing Minister Grant Shapps puts it “Housing is centre stage on the road to recovery”.
So what we do matters. But mortgage lending is a challenge right now. Weak demand in a fragile economy means we face high hurdles at present simply to do the day job of running lending businesses. Both economic conditions, and wider political and public sentiment, feel volatile and unpredictable.
With eurozone problems mounting, and a whole new lexicon emerging - first “Grexit” and now “Spailout” - planning ahead for the financial sector just gets more and more difficult.
We’re seeing the implementation of an unprecedented new wave of regulation:
• We’re all rightly focused on the new rules coming out of the Mortgage Market Review, a wholesale rewrite of conduct rules much larger than the implementation of MCOB on M-day in 2004. Consultation is ongoing, and we’re working with the FSA to ensure we reach the conduct aims of safety and borrower protection within an achievable timescale. We’re trying to avoid choking off perfectly good lending (such as to the self-employed) and ensure that the consumer wins by avoiding backward steps in processes.
• Banks will have to go through the painstaking process of unpicking and then reorganising themselves to conform with the new requirements put forward by the new Independent Banking Commission, effectively ensuring that their retail and investment activities are ring-fenced from each other.
• And we also have to implement the new capital requirements, work with two new regulators and we have the European Directive on mortgages rounding the curve.
As a result over the next 2 years, regardless of what you may think of the resulting landscape, I expect lenders will spend all of their effort on coping with all these new rules, with all the IT, staff training, cultural change and information redrafting that will go with that.
In my organisation, for example, the vast bulk of our IT resource is devoted to regulatory systems changes. That squeezes out our ability to use those resources for developments that our customers might actually appreciate more.
Positives
There are some positives in the environment though:
• Arrears, and particularly repossessions, remain very low by historic comparison, through active and enlightened arrears management and debt counselling by lenders and many good free debt advice organisations.
• There is increasing competition for crucial areas of the housing market, particularly first-time buyers and newbuild.
Picking up on newbuild, it’s good to see NewBuy making a successful contribution. It will free a certain tranche of borrowers to transact when they would otherwise have been unable to. And this will encourage a greater volume of private sector housebuilding than would otherwise have happened.
I commend the CML and a number of my lending colleagues, who have spent a phenomenal amount of time and energy helping to realise this scheme. It was never going to save the market single-handedly. Even if it works to maximum capacity – supporting the maximum government allocation of 100,000 transactions over three years – it will represent just a few per cent of all the housing transactions in the UK. But it helps, as do many other product launches and policy changes that together make this a much more friendly environment for responsible lending at higher loan-to-value ratios than even a year ago.
So much for the “here and now”. A very challenging environment, where many crucial developments are happening at the same time, and many of them outside the control of us lenders.
Lessons
But here’s where I think we can be more assured as an industry. And here’s also where I think we can take some lessons from mediaeval guilds of professional tradesmen. Clearly not the bit where we protect the guild from outside members and collude to set prices!
I think the greatest thing about the UK mortgage market is the fierce competition and wouldn’t have it any other way. But the guilds also took pride in old-fashioned words and values like Confidence, Quality and Skills.
We are a great industry, and I’m really proud to represent the sector. Just to bring that home:
• In total, CML members undertake around 93% of the UK’s residential mortgage lending, valued at around £1.2 trillion. If you had a pile of that many pound coins it would stretch to the moon and back. Nearly five times.
• Through the CML we can harness knowledge and expertise from lenders of all shapes and sizes. At the small end of the scale, our members include lenders like the Ecology Building Society, a vibrant society with a unique niche in sustainable lending, with 20 staff and assets of £103 million. At the other end of the scale, our largest member in the form of Lloyds Banking Group has multiple brands, employs over 100,000 staff and lends 1 in 5 of the UK’s residential mortgages.
• Some CML members have phenomenal expertise in buy-to-let, equity release and lifetime mortgages. Others are experts in lending to housing associations, lending on a shared ownership basis, or commercial lending for new build development.
They are all very different, but what successful lenders do have in common is that they know and understand their customers. They have proven their ability to flex their businesses and operate successfully even through the lean times. They understand that cycles come and go, but that the principles guiding sustainable business are good for all seasons.
We can all learn from them, and from each other. I assume we can all come up with a few ideas we really believe in. We won’t all agree on what they are, but we should compare notes and together decide what we want our industry to be.
For what it’s worth, these are my ideas. Let me elaborate on the three old-fashioned values I just mentioned, and explain what I think they imply.
Confidence
The first of them was Confidence.
We are the people in the industry who know the customers and know our craft – let’s go back to basics.
Most people would probably agree that the system is complicated – too complicated. We need to bend over backwards to build – or if necessary rebuild – trust with our customers. I think we have to get more honest, more transparent, more intelligible, to our customers. We need to speak in English, not double Dutch. We need to be clear about what we provide and how we provide it. More importantly, we need to make a true cultural shift from a sales culture, to a service culture.
Somehow, after deregulation but before the credit crunch, mortgage lending sleepwalked into becoming a commoditised sales business rather than a true customer relationship business. It took the credit crunch to wake everyone up, and now we need to make sure we stay awake.
While working with great respect with the other professionals in the mortgage chain – conveyancers, surveyors, insurers, intermediaries, panel managers and the rest – we must take to heart that WE are the ones with the long-term customer relationship, and its attendant risks and rewards.
We need to take responsibility for that relationship, irrespective of our distribution model or preferences. It might even be better business for us in the long run than the old cat-and-mouse game of churn, resulting in a constant merry-go-round of poaching each other’s customers that ended up giving us the borrowers we deserved, motivated more by price than by service.
Loyalty works both ways.
What we shouldn’t do is build in a safety buffer on capital, a safety buffer on conduct, a safety buffer on market differentiation and end up with a small market of homogenous offerings. There may be pressure from regulators to do so, but to throw away our diverse market place would be an eternal shame and won’t help society.
We should strive for a fair and inclusive mortgage market, and regulators need to help us in this. A market that is open for business to all customers of good credit risk, not just those who have a regular payslip each month.
Quality
My second old-fashioned value was Quality.
We should take pride in ensuring high and increasing quality across the industry, as our sector track record affects all of us as individual lenders.
We should be braver about standing up for doing the right thing, and doing business in the right way.
In the past, we have perhaps taken that idiom of people in glass houses not throwing stones just a bit too far. We should stand up for logic, by for instance making the obvious but strangely absent point that lenders only make money by lending – and therefore do want to lend.
The relationship between funding costs, capital availability, balance sheet on the one hand, and new lending on the other, is mathematical, not psychological. Whether schemes such as “funding for lending” will help to shift the equation we will all be waiting to see.
What we shouldn’t do is turn a blind eye. While we should defend our turf against regulatory excess, we should equally support efforts to identify areas where there are attempts to circumvent rules and allow poor lending to slip through the net.
While there are undoubtedly some good lenders in it, is the bridging and short-term lending market at the moment universally truly fit for purpose, for example? Would it benefit from regulatory scrutiny, and would it really damage us to say so?
Skills
And thirdly, Skills.
We should apply our collective massive experience, expertise and energy to really make a difference
We should continue to innovate for our customers and ensure that we don’t fall into the trap of hiding ourselves in the middle of the pack as a response to regulatory risk.
Too often in the past, innovation was a euphemism for higher risk. That kind of innovation is not what I mean at all. What I mean by innovation is making it simpler for the customer, providing solutions where there aren’t any.
Creativity and innovation can be a challenge for lending businesses operating in a cost controlled environment. But necessity is the mother of invention, and we are the people who have to do this. And I think we can do this, as we are already: look at NewBuy, look at the sudden maturity and great customer experience of online mortgage applications solutions, look at first-time buyer help such as Lend a Hand. We’re already good at this.
A focus on skills obviously means we have to attract, retain and develop the best to our industry. So we should, in my view, wholeheartedly embrace any push for higher qualification standards.
We should also resist the urge in these difficult market circumstances to stop hiring and developing new people “until things calm down” – we need the talent we’ve always been lucky enough to have to bring us back to the new sustainable and buzzing housing market.
I am unbelievably proud to represent as Chairman and as a lender this huge and diverse mortgage industry, currently enabling 10 million families to live in the home of their choice and achieve a major life goal.
Indeed, in this Diamond Jubilee year where it’s suddenly cool to be proud to be British – if you will allow a Dutchman to say so – our industry can justifiably claim to be part of the collective Crown Jewels of the fabric of UK life.
We must find our way from the stalled economy and stuttering housing market that we have now, to a sustainable and rational flow of housing finance that works for the good of both consumers and the wider economy.
A steady flow of reliable funding that includes securitisation and wholesale funding as well as retail, and a predictable but moderate regulatory environment, would be a good start.
Collective expertise
I come back to that collective expertise that we can harness through the CML. A fair amount of it is in fact represented here today, here in the “big tent” (how appropriate). I hope you will join me on a journey that begins right now.
Through the CML, over the next few months we will be attempting to do something that we have not done before. We will pull together an honest self-evaluation of the mortgage lending industry, by the mortgage lending industry.
We will try to look ahead, and identify how we can improve our own contribution to UK housing provision - sustainably, profitably, and responsibly. And we will seek to identify the barriers that we believe we may face, that we think policymakers need to consider.
This may sound simple. It isn’t. Our diversity – which is so much a part of our collective strength – means that we will all have subtly different views about what kind of operating environment suits us best.
But if we can raise our gaze to the bigger picture of what will best serve the UK housing market and its customers over the long term then we will be doing our industry a long-term service.
I look forward to reporting back on our progress when I get my next chance to speak on behalf of the CML, at our flagship annual conference on 7 November, which we’re running with the tagline “Time to be different”.
While I don’t want to see the good things about our market and our industry lost or forgotten, I am equally certain that we shouldn’t be too afraid of change.
Dreams must ultimately stand up to the test of the real world. But let us at least see if we can’t collectively unlock some new and positive thinking about our collective contribution to the future UK housing market.
On that note, thank you for listening.
And let’s begin the conversation.”
